10-QPeriod: Q3 FY2013

Howmet Aerospace Inc. Quarterly Report for Q3 Ended Sep 30, 2013

Filed October 18, 2013For Securities:HWM

Summary

Howmet Aerospace Inc. (formerly Alcoa Inc.) reported net income attributable to Alcoa shareholders of $24 million for the third quarter of 2013, a significant improvement from a net loss of $143 million in the same period of 2012. This turnaround was driven by a combination of factors, including the absence of substantial charges related to environmental remediation and civil litigation that impacted the prior year's results. Additionally, the company benefited from net productivity improvements across its segments and favorable foreign currency movements. Despite a slight decrease in overall sales ($5,765 million in Q3 2013 vs. $5,833 million in Q3 2012), primarily due to lower primary aluminum volumes and unfavorable pricing, the company demonstrated improved operational efficiency. However, restructuring and other charges, particularly related to the permanent shutdown of certain smelter facilities, weighed on results, especially in the nine-month period. Investors should note the ongoing restructuring efforts, significant litigation and environmental provisions, and fluctuations in commodity prices as key factors influencing future performance.

Financial Highlights

53 data points
Beta

Revenue

$5.76B

16.8% Gross Margin

Net Income

$24.00M

0.4% Net Margin

EPS (Diluted)

$0.02

Total Assets

$38.23B

Cash & Equivalents

$1.02B

Free Cash Flow

-$36.00M

Financial Statements
Beta
Revenue$5.76B
Cost of Revenue$4.80B
Gross Profit$967.00M
R&D Expenses$44.00M
SG&A Expenses$248.00M
Operating Expenses$5.69B
Interest Expense$108.00M
Net Income$24.00M
EPS (Basic)$0.02
EPS (Diluted)$0.02
Shares Outstanding (Basic)1.07B
Shares Outstanding (Diluted)1.08B

Key Highlights

  • 1Howmet Aerospace (Alcoa) reported a net income of $24 million for Q3 2013, a significant improvement from a net loss of $143 million in Q3 2012.
  • 2Total sales decreased slightly to $5,765 million in Q3 2013 from $5,833 million in Q3 2012, primarily due to lower aluminum volumes and prices.
  • 3Restructuring and other charges amounted to $151 million in Q3 2013, largely due to the shutdown of smelter facilities, compared to $2 million in Q3 2012.
  • 4The company experienced positive impacts from net productivity improvements and favorable foreign currency movements.
  • 5Significant legal and environmental matters continue to be disclosed, including ongoing government investigations related to the Alba civil suit and various remediation efforts.
  • 6Cash provided from operations improved to $658 million in the nine-month period of 2013 from $564 million in the same period of 2012.
  • 7The company's liquidity position was impacted by credit rating downgrades, leading to increased requirements for letters of credit and cash collateral.

Frequently Asked Questions

The primary driver for the improved profitability was the absence of significant charges related to environmental remediation matters and a civil litigation matter that impacted the prior year's results. Net productivity improvements and favorable foreign currency movements also contributed positively.

Restructuring and other charges were substantial in the third quarter of 2013 ($151 million), primarily due to exit costs related to the permanent shutdown and demolition of certain smelter facilities. These charges significantly impacted the nine-month period's results ($402 million) and represent a key factor affecting profitability.

The credit rating downgrades, particularly by Moody's in May 2013, have led to increased requirements for letters of credit and cash collateral from certain counterparties. This has also slightly increased the cost of issuing commercial paper, though the company has stated it can still access these markets.

Sales in the third quarter saw a slight decline due to lower aluminum volumes and prices. While productivity improvements and cost management are ongoing, the company faces headwinds from fluctuating commodity prices, ongoing restructuring costs, and significant legal and environmental matters. The company's ability to manage these factors will be crucial for future profitability.